P.K.

SIKDAR’S ADVANCE LEARNING

23 C, EKDALIA PLACE
KOLKATA – 700019
M: 98301 65501
Web: www.pksal.com

ICWAI Group I
Applied Direct Taxation
Income from House Property

Basis of charge
Section 22
(i) Annual value of building and land appurtenant* thereto is taxable under this head
[* accompanying]
Notes:
1. Even if letting out is the business of the assessee, still rental income of building is taxable
under head house property only.
2. However in following cases rental income of building is not taxable under this head:-
(a) If the building is let out to carry on the business more efficiently, then it shall be taxable
under head PGBP e.g. residential quarters let out to employees.
(b) In case of composite rent, if it is inseparable.
(ii) If building is occupied by assessee for his own business or profession then nothing shall be
taxable. But if it is occupied for his own residence then it may be taxable.
(iii) Income under this head shall be taxable only if assessee is owner of the building. If assessee is
not the owner of building then rent shall be taxable under head other sources.
Deemed Owner
Section 27
1. In the case of gift to spouse or minor child (not being a minor married daughter), transferor
shall be deemed as owner.
2. Holder of impartiable estate is deemed as owner.
3. In the case of allotment or lease under a house building scheme society, company or other
association, the person to whom building has been allotted shall be deemed as owner.
4. The person who acquired house without registration in part performance of a contract u/s 53A
transfer of property Act, 1882 is deemed as owner. [For transferring property consideration has to
be paid, possession has to be transferred and registration should be transferred.]
5. The lessee of a building in case building is leased out for not less then 12 years is deemed as
owner.

Disputed ownership - If the title of ownership is disputed in a court of law, the income shall be
taxable in the hands of recipient*. [*A person who receives]

Method of computation
Gross Annual Value
Less: Municipal Taxes paid by owner Annual Value (Net Annual value)
Less: Deductions u/s 24
(i) Standard Deduction
(ii) Interest on borrowed capital

Income from House Property

Deductions
Section 24
(i) Standard Deduction:- 30% of the net annual value shall be allowed as deduction from net
annual value. If NAV is negative then standard deduction shall be nil.
(ii) Interest on borrowed capital:- The loan may be taken for purchase, construction, repair,
renewal or reconstruction of the building. Deduction is allowed on actual basis even if not actually
paid.

Notes:
1. Interest of Pre-construction period:-
• If loan is taken prior to completion of construction or purchase of house
• total interest for the period prior to the previous year in which the property has been
acquired
or construction is completed is deductible in 5 equal installments.
• The deduction shall start from the year in which property is acquired or construction is
completed.
2. No deduction is allowed for any brokerage or commission for arranging loan.
3. Interest on fresh loan taken to repay the original loan is allowed as deduction.
4. Interest on unpaid interest is not deductible.
5. Section 25 Interest on borrowed capital, payable outside India shall be allowed deduction if (i)
tax on the same has been paid and deducted at source or (ii) in respect of such income any
person in India may be treated as agent.
Annual value
Section 23

Case 1: Building let out throughout the previous year

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Gross Annual value of such property shall be deemed to be

(a) the sum for which the property might reasonably be expected to let from year to year or
(b) the actual rent received or receivable.
Whichever is higher
(Expected Rent = Municipal value or Fair rental value whichever is higher. But it cannot exceed
standard rent.)
P.K.SIKDAR’S ADVANCE LEARNING
Case 2: Self occupied building
23 C, EKDALIA PLACE
The property which is in the occupation* of the owner for his own residence [* To live on]– 700019
KOLKATA
M: 98301 65501
Case 3: Building which could not due to employment Web: www.pksal.com
• If a house can't be actually occupied by assessee
• because, due to his employment /business or profession he has to reside at an other place
• in a building not belonging to him.
Annual value of 2 & 3 shall be NIL if the property is not let out during any part of P/Y.
[No deduction of municipal taxes and standard deduction is allowed from the property the AV of
which is taken to be nil.]
Deductions from such property:-
In respect of such property interest on capital borrowed for purchase, construction, repair,
renewal or reconstruction is deductible upto Rs. 30,000.
However if
• loan is taken for purchase or construction and
• construction is completed within three years from the end of the financial year in which
capital
was borrowed,
• the total deduction of interest shall not exceed Rs. 1,50,000

Deduction of Rs. 1,50,000 shall be allowed only if the assessee furnishes a certificate from the
person to whom any interest is payable on the capital borrowed, specifying the interest payable
by the assessee.

Case 4: Deemed to be let out property

In case there is more than one Self occupied property then except one house remaining houses
shall be Deemed to be Let Out, at the option of the assessee.

Case 5: Property which is let out but remained vacant during the Whole or Fart of the
previous year.
(i) If because of such vacancy actual rent is less than expected rent, then actual rent.
(ii) If actual rent is more than expected rent, then actual rent or expected rent whichever is higher

Case 6: Property let out during one part of the previous year and self occupied
during another part of the previous year.
The valuation of such property shall be done as if let out throughout the previous year (as in case
1).
Notes:
1. Actual rent is taken only for the period it is actually let out while expected rent is always
taken for the entire previous year.
2. For better presentation, in this case only, if FRV is not given then actual rent should be
assumed to be FRV.

Unrealised Rent
Actual rent shall not include the rent which was payable but not paid by the tenant and so proved
to be lost and irrecoverable if:-
(i) Defaulting* tenant has vacated property or steps have been taken to compel him to vacate
the property and
[*To fail in one's duty or obligation]
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(ii) the defaulting tenant is not in occupation of any other property of the assessee and
(iii) the assessee has taken all reasonable steps to institute* legal proceedings for the recovery of
the unpaid rent or satisfies the assessing officer that legal proceedings would be useless.
[*to start, initiate]
Whether unrealised rent should be deducted from GA V or Actual Rent?
Ans.
1st opinion:- Unrealised rent shall be deducted from Actual Rent. And GA V shall be taken to be
higher of FRV or (Actual Rent - unrealised rent). This is because as per Bare Act actual rent shall
not include unrealised rent.
2nd opinion:- As per income tax return form unrealised rent is deducted from GAV.
Although forms cannot over rule the provisions of Act, but keeping in mind practical approach it
can be said that unrealised rent shall be deducted from GA V. P.K.SIKDAR’S ADVANCE LEARNING
23 C, EKDALIA PLACE
Recovery or unrealised rent KOLKATA – 700019
Section 25AA M: 98301 65501
Web: www.pksal.com
1. Where the assessee can’t realise rent from a property let to a tenant and
2. subsequently the assessee has realise any amount in respect of such rent,
3. amount so realised shall be deemed to be income chargeable under this head and accordingly
charged to income tax as the income of that previous year in which such rent is realised
4. whether or not the assessee is the owner of that property in that previous year.

Whether deduction of 30% shall be allowed from such recovery or not?

Ans.
Yes, deduction of 30% shall be allowed from such recovery. This is because there is another
section 25A which specifically provides that deduction of 30% shall not be allowed for recovery of
rents allowed deduction before 1-4-2001. And Section 25AA is applicable for recovery of those
rents which are allowed deduction on or after 1-4-2001 and this section does not disallow the
deduction of 30%.
Hence deduction of 30% shall be allowed from such recovery.
Special provisions for arrears of rent received
Section 25B
(i) If any assessee has let out any building and land appurtenant thereto and
(ii) has received any amount, by way of arrears of rent from such property, not charged to income
tax for any previous year
(iii) shall be deemed to be income of the previous year in which such rent is received
(iv) after deducting 30% of such amount
(v) whether assessee is owner of that property or not.

Co-ownership
Section 26
• If property is co-owned by two or more persons and
• the share of co-owner are definite
• then the share of each such person shall be included in his income.
Explanation:
If the property is self occupied by co-owner,
→ then annual value of such property for co-owner shall be taken to be nil and
→ each of the co-owner shall be entitled to the deduction of Rs. 30,000/1,50,000

Text of Bare Act

C—Income from house property

Income front house property

The annual value of property consisting of any buildings and lands appurtenant thereto of which
the assessee is the owner, other than such portions of such property as he may occupy for the
purposes of any business or profession carried on by him the profits of which are chargeable to
income-tax, shall be chargeable to income-tax under the head "Income from house property"

Annual value how determined

(1) For the purposes of sec 22, the annual value of any property shall be deemed to be—
(a) the sum for which the property might reasonably be expected to let from year to year; or
(b) where the property or any part of the property is let and the actual rent received or
receivable by the
owner in respect thereof is in excess of the sum referred to in clause (a), the amount so
received or
receivable; or
(c) where the property or any part of the property is let and was vacant during the whole or
any part of the
previous year and owing to* such vacancy the actual rent received or receivable by the
owner in respect
thereof is less than the sum referred to in clause (a), the amount so received or receivable:
[*on account of]
Provided that the taxes levied by any local authority in respect of the property shall be
deducted (irrespective of the previous year in which the liability to pay such taxes was incurred
by the owner according to the method of accounting regularly employed by him) in determining
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the annual value of the property of that previous year in which such taxes are actually paid by
him.
Explanation.-For the purposes of clause (b) or clause (c) of this sub-section, the amount of
actual rent received or receivable by the owner shall not include, subject to such rules as may
be made in this behalf, the amountP.K.SIKDAR’S ADVANCE
of rent which LEARNING
the owner cannot realise.
(2) Where the property consists of a house 23 or
C, EKDALIA
part of aPLACE
house which—
(a) is in the occupation of the owner for KOLKATA – 700019
the purposes of his own residence; or
M: 98301 65501
(b) cannot actually be occupied by the owner by reason of the fact that owing to his
Web: www.pksal.com
employment, business or profession carried on at any other place, he has to reside that other
place in a building not belonging to
him, the annual value of such house or part of the house shall be taken to be nil.

(3) The provisions of sub-section (2) shall not apply if the house or part of the house is actually let
during the
whole or any part of the previous year.
(4) Where the property referred to in sub-section (2) consists of more than one house—
(a) the provisions of that sub-section shall apply only in respect of one of such houses, the
assessee may at his option, specify in this behalf;
(b) the annual value of the house or houses, other than the house in respect of which the
assessee has exercised an option under clause (a), shall be determined under sub-section
(1) as if such house or houses had been let.
Deductions from income from house property

Income chargeable under the head "Income from house property" shall be computed after making
the following deductions, namely:—
a sum equal to thirty per cent of the annual value;
where the property has been acquired, constructed, repaired, renewed or reconstructed with
borrowed
capital, the amount of any interest payable on such capital:
Provided that in respect of property referred to in sub-section (2) of section 23; the amount of
deduction shall
not exceed thirty thousand rupees:
Provided further that where the property referred to in the first proviso is acquired or constructed
with capital
borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed
within three
years from the end of the financial year in which capital was borrowed, the amount of deduction
under this
clause shall not exceed one lakh fifty thousand rupees.
Explanation.—Where the property has been acquired or constructed with borrowed capital, the
interest, if any payable on such capital borrowed for the period prior to the previous year in which
the property has been acquired or constructed, shall be deducted under this clause in equal
installments for the said previous year
and for each of the four immediately succeeding previous years:
Provided also that no deduction shall be made under the second proviso unless the assessee
furnishes a certificate, from the person to whom any interest is payable on the capital borrowed,
specifying the amount of interest payable by the assessee for the purpose of such acquisition or
construction of the property.